The changes would reduce the capital that certain low-risk lenders are required to hold in reserve while maintaining financial resilience. According to Nationwide, the revised framework would better reflect the lower-risk profile of building society lending and increase the amount of finance available across the UK economy.
The proposed reforms follow a review of capital requirements by the Bank of England’s Financial Policy Committee (FPC). They come as the Government seeks to encourage economic growth alongside increased support for businesses seeking access to finance.
Proposed Capital Changes Would Increase Lending Capacity
According to Nationwide, the Bank of England’s Financial Policy Committee intends to reduce capital buffer requirements for banks and building societies that operate with lower-risk lending models. For Nationwide, this would lower its required capital from 4.3 per cent to 3.75 per cent of exposures.
The building society said the change would free up capital and create the capacity to support up to £40 billion of additional lending. That lending would be directed towards residential mortgages as well as finance for small and medium-sized businesses.
Dame Debbie Crosbie, Chief Executive of Nationwide Building Society, said the reforms would “boost the economy by unlocking over £40 billion of new Nationwide lending for mortgages and business growth“.
She added that a more proportionate framework would recognise the low-risk nature of building society lending while preserving the resilience of the financial system. She also said Nationwide was ready to work with regulators to turn the proposed reforms into practical support for the UK economy.
According to Nationwide, the additional lending capacity would strengthen its role across the housing market while increasing finance available for smaller businesses. The organisation already provides business banking through Virgin Money and plans to introduce a Nationwide-branded business banking service next year.
Government Links Reforms to Wider Economic Growth Plans
According to The Independent, the proposed capital reforms are expected to form part of Chancellor Rachel Reeves’ Mansion House package aimed at supporting economic growth. The Government has argued that reviewing capital requirements can encourage lending without weakening the resilience of the financial system.
The reforms have received support from lenders, who say the existing framework places particular constraints on building societies because it does not fully reflect the lower-risk nature of their lending activities. Nationwide said the revised approach would allow mutual lenders to contribute further towards the Government’s objectives on growth, competition and financial inclusion.
Alongside the proposed capital reforms, Rachel Reeves announced additional support for UK small and medium-sized enterprises. According to The Independent, the Government will provide £500 million in funding for innovative firms and start-ups as part of efforts to address an estimated annual funding gap of between £2 billion and £4 billion.
“We know that small businesses are the backbone of this economy and growth in all our regions,” Reeves said. She added that the reforms represented the most significant step in years to improve access to finance for businesses seeking to expand and create jobs.
The proposed changes to the capital framework remain subject to the regulatory process following the Financial Policy Committee’s announcement of its intention to revise the requirements. Nationwide has said it believes the reforms present an opportunity to recalibrate the rules for low-risk domestic lenders while maintaining financial resilience.
